Friday, April 13, 2018

Storm Has Passed?

The market looks like it wants to resolve the 2560-2680 range to the upside. It sure has taken a long time and seems like there are those looking at earnings to save the day, so not a great long setup here, but we had the mini capitulations the last 2 weeks near 2560, so like past bottoming patterns, the market should grind higher for 4-6 weeks here. That is based on historical patterns, ignoring the sentiment and fundamentals.

The fundamentals look bad here, with extreme overvaluation and investors who have too much long term confidence in the economy and the stock market. That is not the backdrop for a sustained rise higher. The mistake I made was in trying to trade this market as if it was still in a climb the wall of worry bull market. It is a topping out phase, which requires more patience and precision with long entries. The shorting is still dangerous, because it can rip higher for weeks at a time, but the payoff for shorting is much bigger in this phase of the market.

Still think we eventually grind higher towards 2720-2760 area by May, but I don't see it doing what it did in the past, which is retrace all of the pullback and go to new highs.

It is notable that Europe has been acting relatively strong compared to the US during this late March/early April pullback. That is a short term positive but a long term negative. It shows that the US market is saturated and investors are basically fully invested in US equities.

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